What is template finance documentation?

Template finance documentation is used to reduce negotiation time and cost.  It serves as a standard reference point for negotiating finance transactions – from financing proposal to loan transfer and sale.

Many document provisions need amending on a case-by-case basis.  In particular, the representations, covenants and events of default will typically be negotiated and amended.

Where changes are made, it is necessary to clearly show where they are made.  The Loan Market Association (LMA) recommends the following approach to using its "recommended forms of finance documentation", in relevant part:

• When distributing the first draft to a borrower and the lenders, the drafting law firm should provide copies marked to show the changes made to the relevant document; and
• At the end of the transaction, the law firm should provide the parties with a conformed copy of the final document (i.e., displaying signatures which are printed or typed, rather than signed by hand) marked to show the changes.

The mark-up of template documentation is helpful for all parties to the transaction since it shows where changes have been made.  This is especially useful for a facility’s administration and any secondary trading of the loans.

As is the case with all of the LMA model form documentation [...], the intention is that it is used as a starting point for negotiation.  Individual parties are free to depart from its terms.  It will always need to be tailored and negotiated.

– Slaughter and May, 2008

Effective loan negotiations require a firm understanding of the agreement structure, its provisions and their relative importance to lenders and borrowers.  It also calls for awareness of the standards to legitimize the inclusion or omission of provisions.

The Loan Market Association (LMA) and the Asia Pacific Loan Market Association (APLMA) publish a suite of recommended forms of finance documentation.  Except for a leveraged credit facilities term sheet, the Loan Syndications & Trading Association (LSTA) does not publish template finance documentation, with the US market relying instead on documentation prepared by legal counsel.